Has the market dismissed IMF?

Companies, Insightful Insights | Comments (11)

Has the market dismissed IMF?

IMF Bentham (ASX: IMF) reported a rather lacklustre result for the 2015 financial year. The loss of four cases wiped out the record first half gain, and while the market has not received this news well, we are pleased with the contents of the full year report.

We have written extensively about our thesis that a significant step-change in the business could occur, and now management has formalised plans to increase the Case Investment Portfolio from $2 billion to over $2.5 billion.

Armed with $130 million of cash, management announced plans at the 2015 result to fund 150 new cases in the next three years. This growth is simply extraordinary when you consider that IMF has only funded around 50 new cases in total during the past 5 years.

IMF will do this by building on the initial success it has enjoyed in the United States, a market which management estimates to be 10 times the size of the Australian market. IMF will also be returning to its roots by funding insolvency claims, which compared to class actions have higher profitability, shorter duration and a higher likelihood of settling.

We consider the market is too focused on the company’s historical result, and remain comfortable with our position in both Montgomery funds.

Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery domestically and globally, find out more.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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11 Comments

  1. Joel
    :

    Just wondering if IMF is still a holding in the fund and any comment you might have about its recent (and not so recent) continual share price decline?

    • Ben MacNevin
      :

      Hello Joel,

      The Montgomery funds have exited IMF due to liquidity constraints with the stock, an overweight exposure in the funds to Financials (specifically, listed Fund Managers), and numerous investment opportunities which were deemed more attractive in the context of IMF’s uncertain case settlement timeline.

  3. Curtis Taylor
    :

    a question rather than a comment. Why are IMF cash flows so much weaker than reported net. I assume that investing cash flows include proceeds from wins, settlements etc but even including this (which was much stronger in 15) only about half historic net (as per Skaffold). Perhaps more importantly what are your cash flow versus net expectations going forward? It makes me feel uncertain about what “profit” FVs should be based on.

    Curtis

    • Roger Montgomery
      :

      When a business has lower cash flows than reported NPAT, check whether investing in developing a new business line is being capitalised, this uses up cash but is not an expense.

  4. Jarrod
    :

    I note the company’s 26 August 2015 Response to Appendix 3Y Query announcement: There are many reasons directors sell, but only one reason they take up a Dividend Reinvestment Plan.

  5. Shane
    :

    It appears as though Slater and Gordon have been dismissed by the market as-well, albeit for different reasons to IMF. If one is to believe SGH’s view on their Quindell acquisition, where they say they have down a bottom up review, then market sentiment may take a 180 degree turn for SGH. I am very much looking forward to their annual report,

  6. Richard Benson
    :

    Whilst I agree with your analysis of the prospects of IMF I cannot see the merit in holding the stock from a high of about $2.50 share to $1.50 but now have a buy order in the market.

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